Impact of Non-Performing Loans on Bank’s Profitability: Empirical Evidence from Commercial Banks in Tanzania

Abstract

This study examined the impact of Non-performing loans on bank’s profitability using information asymmetry theory and bad management hypothesis. This study adopted causality research design using panel data (2007 to 2015) of 16 commercial banks in Tanzania. The study employed Descriptive statistics and multiple regression analysis estimation methods. Likewise, Ordinary Least-Squares (OLS) regression technique was also used, and then Fixed Effects (FE) and Random Effects (RE) assumptions were considered.
 The study found that occurrence of non-performing loans is negatively associated with the level of profitability in commercial banks in Tanzania. The results extend further the information asymmetry theory and bad management hypothesis. The findings of the study have both theoretical and managerial implications for practitioners and policy-makers